A Look Back at 2010
A new year has arrived and it is time to look back over 2010. As usual, the year brought us several surprises and changes, most of which would never have been predicted. Remembering the words of Casey Stengel “Never make predictions, especially about the future.”
I could discuss the political changes that took place in November, but I am a skeptic and until proven differently, a politician remains a politician independent of whether we color their district red or blue. I will leave that discussion for the next editor…I would like to focus on the Deepwater Horizon explosion, the extension of the drilling ban, the rig count, the prices of oil and gas, who is buying what, what has been discovered, and changes within my family.
The year began with mixed signals. The day before the President’s State of the Union Address, the Department of the Interior announced that it would delay the Virginia offshore lease sale scheduled for November 2011. The next day, the President included this line in his address, “It means making tough decisions about opening new offshore areas for oil and gas development.” This single line suggested to many that there might be a change in the wind and much of the offshore would be on a path toward leasing and future exploration. However, the draft budget released in February indicated the contrary and the industry should expect a decrease in the availability of new offshore acreage.
On April 20th the Deepwater Horizon drilling rig exploded. Eleven lives were lost, seventeen crewmembers were injured, and oil began to leak from the Macondo well. Estimates of the amount of oil that leaked remain a point of contention. The U. S. government estimates that 4.9 million barrels of oil were spilled; BP contends that the government number may be over-estimated by between 20 and 50%. The actual amount of oil spilled is probably not important to most of us. All parties agree that it was a large amount, which impacted the ecosystem and livelihood of much of the Gulf Coast. What is important to most of us, in addition to the loss of life, was the fact that the Macondo well explosion and leak resulted in changes to the industry that will persist for many years:
- The shutdown of drilling in U.S. offshore waters for much of the year
- A reorganization of the agency that regulates the industry
- New regulations and requirements
- The formation of a cooperative industry organization to respond to such incidents in the future
- A hardening of the freeze on OCS leasing for the Eastern Gulf of Mexico and the Mid and South Atlantic through at least 2017.
Unlike offshore, where government action slowed down activity, onshore activity did not miss a beat. The rig count continued to slowly increase throughout the year (Figure 1). As of December 4th, there were 1,690 active land rigs. Much of the growth in the rig count can be attributed to a steady increase in the number of oil wells. At the start of the year there were 427 oil well rigs and on December 4th there are 742 oil well rigs in operation. Horizontal operations accounted for 966 of the rigs. One can only hope that the concerns expressed at different governmental levels over fracking do not lead to significant restrictions in shale gas and shale oil operations. We may begin to ponder whether the restrictions on Marcellus operations in Pennsylvania are exceptions rather than the forbearers of things to come.
The year began with the closing of ExxonMobil’s purchase of XTO, a major move into the unconventional resource arena. France’s Total and China’s CNOOC both entered into significant deals with Chesapeake Energy for positions in the Barnett Shale and the Eagle Ford Shale, respectively. India’s Reliance also took a position in U.S. unconventionals, with a capture of a position in the Marcellus Play. It was not only foreign companies acquiring assets in the U.S., U.S. companies entered in the unconventional space overseas in such places as Poland and Romania.
The steady increase in the number of rigs took place even though the price of natural gas continued a general decline (Figure 2). Natural gas began the year at $6.645 and in early December closed at $4.318 per MMbtu. The drift toward lower natural gas prices during the year was not reflected in crude oil (Figure 3). Crude oil meandered for much of the year within an $18.00 trading range, with its low occurring in late May and a high in November. There may be a number of reasons for the apparent disconnect between oil and gas prices — increased availability of North American gas a result of shale gas drilling as well as a weakening of the U.S. dollar — but I will leave that in the hands of the economists to debate.
Significant discoveries continued to be made globally. Near to home there was McMoRan’s Davy Jones discovery at 28,263 feet on the Louisiana shelf. Further a field there were major resource adds, for example Tullow’s Owo discovery in Ghana, Petrobras’ pre-salt Franco discovery offshore Brazil, Eni’s Cabaça South East discovery offshore Angola, and Chevron’s Acme gas discovery offshore Australia. New resources continue to be found.
Finally, there have been a number of changes to our family, all of which brought both my wife and I tears of joy! The year began with the arrival of our first granddaughter Madison. As she made her entrance to the world, Terry was in the delivery room with Jeff and our daughter, Rebecca, while I was in the waiting room, on a conference call. (It does seem that you can never escape.) This summer, Madison began the family tradition and took her first cruise! (Although I’m not sure that she will remember Alaska and those glorious glaciers.)
This summer our family grew in leaps and bounds, as our younger daughter, Michelle was married. We welcomed David, our new son-in-law, and also two new-granddaughters — Catherine and Abby. The two girls and I have spent many hours in the kitchen cooking and baking together. Being a grandparent is wonderful! All the fun and none of the responsibilities! A few weeks ago, we were thrilled to learn that Michelle and David are expecting an addition to their family! So as a family we will continue to expect change as 2011 begins. And, you know what they say about changes, “you have to be flexible”.
Until next month…